2008/10/31

The Cold War time was kind of simplistic - two pretty fanatical blocs were opposing each other. Both were driven by ideology and thought that the other bloc prepared to invade and annihilate them.
War between the blocs was considered as the equal of armageddon.
Everyone was so convinced that the others were dangerous madmen that they would indeed use their nuclear weapons to annihilate hundreds of millions of people (if not mankind) if World War III broke out.
Everyone could read the scenarios that told about less than minutes from pressing triggers to the killing of billions.

That was an environment in which truly everyone believed the other's nuclear deterrence. Some wondered whether a first strike could disarm the others, but nobody was ready to gamble on the possibility that the whole nuclear threat was just a threat and not more - like the chemical weapons threat in WW2.

Those simple times are over.
Today, we still take it as granted that a nuclear attack on a nuclear power would motivate a nuclear revenge.

But does this work for nuclear umbrellas, too?
Many NATO and CIS members don't have own nuclear arsenals because they expect allied nuclear powers to provide such a nuclear umbrella - the deterrence with nuclear weapons to prevent third party nuclear attacks.

Imagine Saudi-Arabia as nuclear power. Including ICBMs hidden below the desert sand.
Imagine that a caricaturist in Copenhagen draws again funny images of Muhammed - and Saudi-Arabia decided to settle that once and for all, nuking Copenhagen with a 150kt warhead. The Arabs would afterward tell the world that the issue is solved in their opinion and they do not intend to attack others (unless someone else becomes offensive...even if only on paper).

Would the United States, the United Kingdom or France really risk a nuclear attack on New York, London and Paris? Would they do it together or only one? Would there be a necessity to retaliate?

This was a scenario that was rather favorable for a retaliation - the bad guys would be known suspects, be considered as irrational and ideologues.

Now imagine a more difficult scenario:
India becomes irritated by Portugal and decides to destroy Portugal's second largest city; Porto. A quarter million dead. The prime Indian minister resigns immediately, there's no madman involved (any more), no ideology - just a rather small dispute about former Portuguese colony Goa and maybe some arrested diplomats or similar stuff.

Would the nuclear powers of NATO retaliate? Would in turn the expectation of retaliation be strong enough to prevent an attack in the first place?
Wouldn't the scenario be too rational, too non-critical for the survival of the nuclear powers (as long as they choose not to retaliate)?
Wouldn't a conventional, possibly even only political reaction be more promising, enticing for the previous nuclear umbrella providers?

I believe that we're still stuck in a Cold War understanding of nuclear retaliation, but the international crisis dynamics have evolved. Maybe the nuclear umbrellas are much less credible today than most people assume.

2008/10/24

Reporters sans frontières has released a new annual report on the freedom of the press world-wide.

Germany ranks 20th now in the "World Press Freedom Index 2008".That's still disappointing, but "Attacks on press freedom in 2007 were mostly threats to undermine the privacy of journalistic sources, with court decisions and moves in parliament."

The constitutional court ruled on 27 February 2007 that police raids in 2005 on the offices of the political magazine Cicero were illegal, along with their copying of computer data. The magazine had run extracts in April 2005 of a secret report by police about Al-Qaeda activities and police searched its offices in September. Editor Wolfram Weimer said it was a violation of press freedom and appealed to the constitutional court, which ruled that press freedom was entrenched in the national constitution and that “searches and seizures as part of investigation of a journalist” were “illegal if they simply or chiefly aimed to find out the name of a journalistic source.”

Despite the ruling, 17 journalists were prosecuted in 2007 for “involvement in disclosing state secrets” (article 353b of the criminal code). They included journalists on Berliner Zeitung, Die Zeit, Welt, Der Spiegel and Süddeutsche Zeitung, in Berlin, Munich and Hamburg. The lawsuits were filed in August after the leaking of confidential material from a parliamentary commission investigating therole of the BND secret services in the fight against terrorism.The national journalists association DJV says 180 suits alleging “complicity in betraying state secrets” have been brought against journalists in Germany since 1986. All the investigations have been dropped by the end of the year. Berlin was the last one on the 20th of december 2007.

The issue will remain a major one for journalists in 2008. The lower house of parliament in November 2007 passed a proposal by justice minister Brigitte Zypries requiring telecommunications firms to keep records of their customers for six months. The measure (effective 1 January 2008 but not until 2009 for online traffic) brings German law into line with European Union directive 2006/24/EC, under which EU countries have to keep data needed for investigations and prosecutions for between six months and a year. It will enable message senders and recipients to be identified, as well as the date and type of message, the equipment used and the location of mobile phone users.The law also gives lawyers, MPs and religious figures protection journalists do not get. Examining magistrates will be able to force journalists to disclose their communications if considered in the interests of the investigation.

The measure sparked strong protests from civil society and 30,000 people signed a petition to appeal it to the constitutional court, which cannot hear it before the law is officially promulgated in the official gazette. Media organisations also voiced opposition to the measure.

Germany is still in the top category "Good situation" - many 'Western' nations were only rated with a "Satisfactory situation".

2008/10/23

I thought for months about whether this blog is the right place to write about the economic crisis. Any relation to defense and freedom affairs would be more than a stretch. A first, incomplete attempt was made with earlier this month.
I can't hold it back any more. ;)

We've seen the mortgage debt crisis, the (prevented) insolvency of banks and a crash of intra-institutional trust on the financial market. The financial markets failed completely to allocate the resources efficiently, a major blow for economic theory and an even greater blow for the banks.
This failure wasn't prevented (but instead promoted) by active policy and would in itself have done a lot of damage.
That are only the most visible symptoms - not the real crisis, though.

The real crisis is a general mismatch of consumption/investment and income. The U.S. was simply living far beyond its means, enabled by cheap credit due to its leading currency, large economy and a lot of trust/goodwill.

This mismatch happened on the private level (mortgage, credit card and other debts = ultra-low savings rate), on the government level (record budget deficits by GWB, for example) and on the national, macro-economic level (long-time & huge trade balance deficit).

The real economy wasn't able to produce nearly as much goods as were consumed and invested - that is visible in the huge trade balance deficit which equaled 5% of the GNP.
The savings rate was also much too low for too long. Some claim that savings rate statistics are a bit misleading because of technicalities, but the savings rate was reported to be negative and certainly was close to zero for some years. For comparison: The German savings rate is around 10% of the GNP.

Such a situation was not sustainable, but the bubble kept growing for decades. It became a mantra that economic growth was to be attained by increased consumption instead of a focus on increased savings or investment - the foreigners did the saving for the Americans.
That, obviously, is about to end. Such an arrangement can only work for some time, not endlessly - and it breaks down once the trust in proper payback breaks down.
That is what the mortgage crisis really did to the U.S.; it ruined the trust.

Maybe the U.S. will be able to keep a net capital import for several years, but not on the old scale. It is necessary to either reduce consumption or increase industrial production or both.
More service economy won't help much. A rapid expansion of the industry is unlikely - it would likely take a decade to cover the trade balance deficit with it. That would have been a good idea before the crisis, now it's too late. Consumption needs to drop. Rapidly.

Consumption needs to drop in favor of savings - insecure consumers is sometimes a good thing (in macro-economy). It needs to drop to reduce import demand, too. Meanwhile, the industry will likely (actually, does) reduce production, and this means even less consumption is affordable.
10-20% less consumption for 'Joe Sixpack' in 5-10 years is realistic in my opinion. realistic and economically healthy. The next U.S.President has chosen a terrible time for a presidency.

Some countries might experience similar crisis symptoms in the medium term because of similar root problems liek trade balance deficit (Spain, UK, Italy), but others (Germany, South Korea, Japan) might even prosper because of an end of the capital drain. The PRC might go just about everywhere from extreme prosperity to an economic crash.

The U.S. economic policy needs to have these goals:

1) short term: To cure the financial markets. They don't need to be organized and work as before, though. Instead, they need to do their job.

2) medium term: To revive the industrial sector. A share of only about 20% of the GNP is obviously insufficient to meet the expectations for wealth. Globalization may be a good thing, but the past policies were obviously no good idea. NAFTA needs to be revisited, for example.

3) long term: Reduce vulnerability by a reduction of dependence. That's not about full self-reliance at all, but about reduction of systemic risks by diversification and substitution.

4) attitude: Welcome in the real world, where normal rules apply because you cannot excuse your actions by claiming you're "exceptional" when you're in fact just large and about to strike out with your actions. "Normal" causalities need to be accepted, and replace ideology and wishful thinking.

I was pleasantly surprised today when I wrote that the presidential candidate with the vastly better chances has actually understood the roots of the problem:

...He wants to launch an "Apollo project" to build a new alternative-energy economy. His rationale for doing so includes some hard truths about the current economic mess: "The engine of economic growth for the past 20 years is not going to be there for the next 20. That was consumer spending. Basically, we turbocharged this economy based on cheap credit." But the days of easy credit are over, Obama said, "because there is too much deleveraging taking place, too much debt." A new economic turbocharger is going to have to be found, ...

We'll see whether he's able to use that insight. The next time when the Senate votes on a stimulus package is a good opportunity to observe him.
There's no better choice, though. McCain has obviously no clue about economics (and actually told the public so years ago)

This is a time for a paradigm change, not just some talking point change.A whole nation needs to re-learn how to match income and expenditures.This includes a 'defense' and other (para-)military budgets based on economic reality, not on fantasy land perceptions of American greatness. The Chinese, Japanese, South Koreans and Germans won't withhold their own consumption in favor of financing the U.S. military in 2015. The Saudis will probably do so, but that isn't even enough for the U.S. Coast Guard.

(I'm curious how well this economic opinion will stand the test of time.)

The offense has correctly been characterized as the only form of combat that can bring a decision on its own. To be on the offense is usually related to having the initiative and considered to be a rather good thing - generals choose the offense whenever they feel that they are strong enough.The defense is correctly being considered to be the stronger form of combat, though (this holds true up to the operational level if counter-attacks are included in the defense).

Today, we consider most opponents that we face as vastly inferior and disregard the "defense is stronger" detail. That's possible because all our "Western" wars were wars of our choice since 1945 - we simply picked only weak opponents (like half of NATO vs. tiny Yugoslavia, USA vs. ragtag Taliban/Iraq/strange Asians in the forests).

The standard procedure - especially in conventional combat - is the offense for us. Defense - that's only for outposts, right?

Germany had a offense vs. defense philosophy discussion in the 1920's, and the offense-favoring Generals won that debate (unlike in France). The result was an army of almost a hundred slow infantry divisions ( most of them capable of slow offensives) and few "Schnelle Truppen" - fast troops; armored and motorized divisions which formed the spearhead of the pincer offensives.The Wehrmacht neglected the defense and had only marginal defensive experiences in 1939 and 1940 - it wasn't forced to major retrograde movement of whole divisions till late 1941. That as the time when a certain lack of training in the defense - especially in recovering after unsuccessful defense of positions - was revealed.

There's 'some' relevance of this example for today; our armies aren't exactly well-prepared for the defense. Cold War defensive art was probably not the most daring one, but there was a potential opponent strong enough to force us to think about the defense at least.The Iraqi insurgents were also able to point at some gaps in our defensive preparations: Hard body armor / wheeled vehicle armor / C-RAM were mostly neglected technologies. They weren't incorporated on a large scale when they became feasible - they were only adopted on large scale when the lack of preparation began to hurt.

It's not very different on the operational scale. Published exercises are mostly about a 'blue' offense, and the 'red' defenders are expected to lose.Take the Iraq/Iran example; what if there was really an Iran war in 2009, if Iranian troops would infiltrate and wreak havoc inside of Iraq? Imagine a general uprising in Iraq at the same time - are the U.S. generals confident that their troops could fight their way back to Turkey and Kuwait orderly and with few losses? I doubt that.

Another weak spot in our preparations seems to be the fight after serious losses. Our infantry is high-quality infantry, but what happens if it experiences serious losses nevertheless? What if our few counter-artillery radars were taken out? What if the enemy attacks with waves of thousands of killer drones like Taifun? Our air defense is certainly not prepared for this, and F-22's ruling the skies won't help much in such a situation.

Our armies aren't even close to "full spectrum" - there's a noticeable neglect of the defense, and this might hurt us in the future.

It's a plausible assumption that the ability to spend much on the military is being limited by debt obligations - and I wanted to check the statistics.

Unfortunately, a simple comparison of public debt and military expenditures offers only a snapshot and suggests rather a causality (high expenditures may cause high debt) than to tell about the sustainability of the situation. The ultimate test will be the future. We've got enough countries for a meaningful observation in the next decades.

The debt/spending comparison yielded some interesting diagrams, though.
The data is exclusively from the CIA World Factbook this time, only countries with both data given were included. Debt data was mostly of 2007, whereas the available military spending data was usually 2005, 2006 or 2007. Note that this time debt is being expressed as what the CIA defined as "Public debt".
At least it's all the same source.

Most countries have clearly less than 70% GNP public debt and 4% GNP military spending. Another group has up to 110% and 7% respectively, but there are conspicuously few countries in the upper right part of that group.
Finally, there are several exceptions with more extreme spending or debt, but none combines both.

Israel is a special case in this graphic because U.S. military aid to Israel equals about a quarter of its military spending. It's in a very special situation as well.
Singapore is an exception because of its small size as a city-state.
Japan is an exception due to its constitutional (theoretical) limitation on self-defence forces.

Military spending and public debt levels seem not to be very correlated among the advanced economies - up to about 3% military spending and 70% public debt seems to be usual.

An analysis over time (since 1992, for example) would offer hints about sustainability - this diagram is only useful to differentiate between usual and unusual spending/debt levels among advanced economies.

My best guess is that Italy (104% and 1.8% according to CIA) and Belgium (84.6% and 1.3% according to CIA) are good representations for a nation with high public debt.

(By the way - the CIA World Factbook data is partially weird. Norway's public debt is being given as 83.1%, which is much too high. I didn't exclude such questionable cases, though. The diagrams were made with a very quick/short research.)

2008/10/20

I'm quite stunned by the quality of gigapixel photos. This is a 13 gigapixel photo - the resolution is breathtaking. Try to zoom in - a small dot on the horizon can be a large building and you can count its windows. Fascinating.

The potential for military applications is a huge one in my opinion.Imagine to look own from a hill/mountain and take a photo line-of-sight with several kilometers range. Movements and changes in the landscape could be detected easily without emitting radiation like a battlefield radar. Software could analyze the picture and present conspicuous parts of the image to a soldier.The use in aircraft might be limited due to exposure time and the unsteady, moving platform, though.

Armies have mostly neglected battlefield photography, even though digital cameras are becoming more common. Gigapixel photos have the potential to become a more important reconnaissance tool than video cameras, though.

2008/10/19

Many people focus on Afghanistan instead of on Iraq these days, and one of the 'political' assumptions seems to be that it's possible to 'surge' in Afghanistan.
There are many voices (including generals) who deny that the export of the 'surge' to Afghanistan would work, but the idea that the OEF-A's troubles could be reduced by more troops floats around.

Maybe it's possible to increase the troops strength there by a brigade or two, but really strong increases are imho unlikely.

The logistical situation wouldn't allow for 100,000 troops.

The supply lines from the north are threatened by the political fallout of the South Ossetia War.

The supply lines (and overflight rights; the truck convoys alone are said to deliver 80% of the supplies) of Pakistan are being threatened by potential attacks of Taliban and the political fallout of the recent raids into Pakistani territory.

Iran is no friend of Taliban, but doesn't really qualify as reliable supply line due to the political fallout of the U.S./Iranian troubles about the Iranian nuclear program.

(As you can see - the global policies of the GWB administration weren't cohesive and eroded good relations to many places.)

It's a miracle that we've been able to supply the small troop strength that is in place.

Unless our forces learn to live off the land (and drastically reduce fuel consumption), we will likely not be able to sustain (even as alliance) a much larger presence there.

Whatever the strategy is; it needs to work without much more troops and needs to achieve more than an effective ANA. An effective ANA alone is just one more enemy for the Taliban, not their defeat.

2008/10/15

Japan - a country of 127 million people, highly industrialized economic powerhouse and one of three Western outposts in East Asia.The country is just pacifist due to its constitution, but is eroding this limitation by military participation in overseas missions.It might build a powerful military to deter the PRC in the future.

Right? Not really.

Japan was the horror of European industries around 1990 when Europeans hurried to understand the efficiency of Toyota's automotive business and Sony's miniaturization of consumer electronics, as well as other advances of Japan's industry.Shortly thereafter Japan fell into a long-lasting economic crisis and its governments reacted wastefully with somewhat Keynesian fiscal policy, lending more and more money for more and more spending in an attempt to jump-start the economy again.

Japan is still a rich country with a very positive trade balance and a capable industry. The Japanese central government isn't financially strong, though.The government debt is a disaster. It's somewhere close to twice* the GDP (gross domestic product).It's a disaster, catastrophe, calamity, debacle, cataclysm. Terrible.

A government with a debt of about 80-100% GDP or more is very hard-pressed to fulfill its basic services and pay the interest, but never in an acceptable position to enter an arms race.

The typical old NATO member state has a government debt of 25-70%.The Eastern European NATO members have rather low government debts, 25-40% is typical.This is sometimes just the federal debt and does probably not include obligations like pensions or debts of parafisci (non-state budgets like national social insurances).

Spain and Italy - two major European allies with financial/economic long-term problems that exceed even the (significant) long-term problems of countries like Germany, UK and France.

Many Western nations have quite mature states and economies, and piled up problems over decades. The vitality of the 60's is long gone, and we should recognize the 'new' situation: Our nations don't have much power reserves to mobilize in situations that are no total war. It's even questionable whether the current military spending levels can be sustained (in % of GDP).

This government debt situation has certainly implications for the ability to spend the same or more on military power in the future. The Grand strategy of NATO and its nations should attempt to avoid large arms races due to its mature and not vital enough economies/societies/governments.

The NATO cannot follow one path if some members oppose it. It would be impossible for Ukraine or Georgia to join the NATO even if only Luxembourg disagreed. Every member can veto an enlargement, because an enlargement equals an additional obligation. There's no way how some members could invent obligations for the other members in that club.Germany opposes an enlargement and wants a co-existence (Chancellor Merkel is very likely really the most pro-American (relevant) politician in Germany, so this stance won't change soon)

The USA and the UK can (if not distracted too much by their economic crisis) offer a separate alliance to Georgia and the Ukraine if they want to, but that wouldn't be much more than hot air and inked paper as long as they don't win the Turks for their plan.

In short: The capability of the USA to define the Eastern European security system is abysmal. It's really up to the Europeans (including Russia) to do that.

*: Finally, I want to mention the "glitches":

1) He offers quite much room for interpretation on the energy dependence issue. It would have been less misleading if he had first shown how little additional motivation to resist is necessary (if any at all). This way, he first reinforced misconceptions about the severity of the present dependence.

2)"West and East Germany would serve as the primary battleground of any Soviet attack, with Soviet armor facing U.S. armor, air power and tactical nuclear weapons."This is obviously misleading, as the U.S. forces were not the only forces that deterred the Warsaw Pact at all.

2008/10/13

There are several seriously annoying topics that recur all the time in national security related discussions with U.S. Americans; they believe to know that Europe is (especially) weak, doomed - and why.

One such topic is that Muslims will take over Europe by the power of demography.
That's so ridiculous, I won't discuss it. Everyone who believes such a mind fart should invest some money into actually visiting Europe and talk to many intelligent people here.

The other topic is an alleged critical dependence on Russian natural gas and/or Russian oil. As if the USA wasn't dependent on energy imports...

Let's focus on the natural gas issue; natural gas cannot as easily be transported as oil because it's usually a gas - liquefaction is expensive. Gas pipelines are the primary means of transportation today. That limits the choice of suppliers.

The dependence is mostly a forecast problem, much less a problem today. Forecasts for 2030 tell about such a critical dependency, the actual relevance of Russian natural gas today is probably exaggerated.

Let's use Germany as an example; the natural gas share in its energy mix was 22.7% in 2007. That's apparently less than the global average of 24%.42% of the natural gas was being imported from Russia (June 2006 to May 2007), or 36% in 2006.

Natural gas wasn't really important before the 70's because of city gas, a charcoal-based alternative.
Natural gas is in use for heating, cooking, electricity generation, iron refining, fertilizer production and hydrogen production today and has acceptable or good substitutes for all of these uses.
A sudden loss of a third or half of the natural gas imports would likely lead to a shutdown of natural gas powerplants. These supply electricity primarily for peak demand times and could be substituted by an increased (but under normal economic conditions less economical) output of other powerplants. We've got still some excess capacity for electricity production here (which has historical reasons).

The challenge has been recognized years ago and both policy and enterprises are adapting, trying to develop a diversified import mix. Liquid natural gas (LNG) imports from overseas (especially North Africa) are being planned (the planned harbor facility capacity equals several percent of the overall consumption so far), and projects to build the necessary facilities in Wilhelmshafen (a German harbour) and/or Rotterdam (Netherlands) were initiated. 2030 is a long way to go, and the natural gas export revenue dependence of Russia might well be greater than the natural gas imports dependence of Western/Central Europe.

There's also the other side of the coin; Russian dependence on energy export revenues. Their foreign currency reserves are large enough to reduce the dependency to a medium-term issue, but the use of energy raw materials for political pressure (including mere threats) would seriously undermine their medium-term prospects for exports of the same goods.

Russia's past political-economical conflicts with the Ukraine and Belarus were about ridiculously low natural gas prices; these countries pay about a fourth to half the price per unit that Western Europe does, and were also accused of stealing natural gas from pipelines that was destined for Western Europe and of not having paid some bills. These past conflicts are no real sign for the use of natural gas exports as a political weapon by Russia. It's just fair to side with Russia and acknowledge their right to demand proper payment for their goods.
Russian political pressure on the Baltic states (especially Estonia) is more serious and deserves to be studied in detail.

All industrialized countries are dependent on world trade, this is usually a mutual dependence of both sellers and buyers.

'Old' Europe isn't doomed. At least not more so than the USA, many parts of it likely much less so.

2008/10/12

The Cold War was a somewhat funny time; the involved powers were not so much preparing for the next war, but instead focused on deterring the other bloc.

It's a bit confusing that despite this official focus on deterrence, they limited this in practice to quantities. The strength in terms of quality - especially in terms of innovation - was not as visible. Technological advances were often guarded as secrecy (especially by the Warsaw Pact). To keep details secret made sense - it delayed the introduction of effective countermeasures. To keep capabilities secret made less sense. You cannot deter with a capability if the others don't know (or at least suspect) about it. You didn't want to develop a military capability to use it in WW III because you didn't want to experience a WW III.

Furthermore, spying was so intense that many secrecy efforts only protected the secrets from leaking to the own citizens and irrelevant small powers because the opposing bloc had often learned the secret by spying.

The international security environment has changed since the early 90's, and a focus on deterrence is not necessary anymore because war among equals at high level have become unlikely due to a lack of real conflicts.

One implication is that it makes more sense than during the Cold War to keep capabilities secret.

The shift away from deterrence among leading powers to small wars had probably motivated a shift towards more secrecy about capabilities, and consequently lead to a less well-informed public.It's just one motivation to shift the behavior to more secrecy, maybe this factor was over-ridden by other factors (like the internet).

The black budgets are large, though - and the gap between what appears to be feasible and what's being officially done seems to be quite large.

2008/10/08

Suppressive fires have been used in fire & maneuver tactics ("no movement without fire") since at least the First World War. The basic principle is simple; you shoot at opponents, these opponents seek cover and cannot observe & shoot effectively for some time. Meanwhile, some comrades move (or assault) - and survive.

Interestingly, this seems to have worked well with low firepower weapons like 20 rounds magazine light machine guns/automatic rifles in the Second World War. Well, if one such 20-rds-magazine-weapon was able to suppress a machine gun nest - how much can a modern squad suppress? Every single soldier has that much firepower today.

The only possible conclusion is that in absence of quick victory/defeat in small firefights, suppression is certainly extremely effective today. In fact, modern weapon development rather aims at killing suppressed forces behind cover (improvement of grenade weapons including air burst munitions) than at improving the suppressive effect.

Suppression has some requirements, though.A good morale, good training, good small unit leadership, good body armor and good cover (which still permits observation & fire) helps a lot to resist suppression and stay effective.Another requirement is to find & identify the opponents before the suppression - and to communicate this to your team.Finally, you won't suppress the opponent if he succeeds to suppress/hit you first - and to keep that up.

These requirements highlight yet another time how important camouflage and deception are for infantry survivability.A great camouflage can prevent that the opponent spots your team first, can prevent that he shoots & suppresses first. The opposing team still lose valuable seconds even if some of them succeed to find AND identify your team because some team members will do so later than others. Your team might also be only partially under suppressive fires if (thanks to camouflage) some teammates are detected and others are not.

Deception can help as well - especially muzzle fire deception. Small LED & firecracker devices could be used to simulate firing from a wrong location, drawing suppressive fires into empty spaces, confusing the opponent and adding to the (morally important) impression of larger numbers.

I've got the impression that modern ground forces have more firepower than necessary, and that it would be wasteful to focus attention on improving the armament. A new grenade launcher, machine gun or assault rifle deserves less attention than improvements of camouflage (camouflage, not mere patterns on clothes!) or small tools and tricks that really help to win the firefight.

2008/10/06

It's quite amazing how much the media and almost everyone focuses on the financial markets in this crisis. I believe that this could lead to suboptimal reactions.

It's similar to a man's mortality. A disease wins the race and kills him first. That's inevitable. That disease may be defeated with drugs, but then another disease would win the race for the kill, slightly later.

It's quite the same with this crisis - the mortgage crisis is the winning disease, it's not mortality itself. An economic disaster would have happened as well if mankind never invented mortgages.

The underlying problem is in my opinion a sustained mismatch of income on the one hand and consumption/investment on the other hand. The imbalance was unbearable at that extent. Neither government nor the Fed attempted to re-balance it gracefully, thereby leading to a rough landing.

That mismatch/imbalance could be considered as a cultural phenomenon - it happened on the individual (mortgage, credit card debts, low savings rate) level, on the state level (budget deficits) and on the national level (trade balance deficit).
To live beyond one's means had apparently become a national trait (of course not for every individual).

Foreigners are also at fault, as they (especially the East Asians) supported this and were even happy about their trade balance surplus (a bad habit that's also wide-spread in Germany).

The short-term measures to soften the crisis may work or not - every crisis ends sooner or later anyway. The really interesting question is "what happens afterward"?
Will the culture of overspending survive?

This has an important consequence for global military affairs: The state consumption that has been much too high during the GWB administration includes a completely bloated 'defense' budget and equally bloated other military-related and para-military budgets. The belief in the ability to sustain such a level of military spending is still intact among many people who focus on military affairs.

The wasteful military spending is equally unbearable as was the mad sub-prime market. It was a disease that didn't win the race.

A reduction of the military spending (even beyond just saving the current war costs) seems to be inevitable.
May this change the foreign policy attitude that's being regarded by many as arrogant, will it prevent new stupid wars? Will the USA pull out of Iraq ASAP, maybe in early 2010? Maybe the war in Afghanistan could be finished? Maybe U.S. meddling in Eastern Europe and Asia might come to a full stop, enabling the Europeans to negotiate win-win deals with Russia?

The economic crisis helps to recognize the lack of sustainability of the past U.S.military strength.
This happens at a time when the inventories of army, navy, air force, coast guard and national guards are rather old and worn-out, a problem that was caused by a terrible procurement administration and policy in the past two decades.
It's very unlikely that a modernization to match the own expectations could be done with a much-reduced budget without a huge cut in force sizes. The attempts to increase the army personnel strengths is extremely antagonistic.

The U.S.Americans might believe that their country is "exceptional", but it's really just large and had a lot of goodwill among other countries. The debt-based illusion of power and wealth is being torn apart these days, and we will certainly not see the USA during 2026 in a similar position as in 2006.

edit 2008-10-12:
I saw a discussion on CNN International an hour ago - about how the nation got to this point. The bottom line of the pundits was that the state deficit spending wasn't sustainable and foreigners are not willing to finance U.S. deficits anymore (an indirect reference to the trade balance deficit).
The conclusion: The nations needs to "grow up" and "pay taxes again", especially "the rich people". The age of Reagan is finally over in their opinion.
They did discuss how remarkably little influence the financial crisis had on the real economy so far. Well, they seem to ignore the well-known lags. Upturn and downturn in the real economy influence the unemployment rate - not instantly, but increasingly over the next two years. One per cent less growth equals (rule of thumb) a half per cent more unemployed after two years (ceteris paribus).
The near-collapse of the automotive sales (depending on source and company something like 16-30% less turnover) shows that private consumption is likely finally scaling down towards a sustainable level.

edit: 2008-10-16:
The insight is dawning. I just saw Peter Schiff (Author "Crash Proof") on CNN International making the exact same point; to way out of the crisis is about producing/saving more and consuming less. It's not about re-starting the bubble-creating lending machine or about pushing the domestic consumption.